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Complexity with Heterogeneous Fundamentalists and a Multiplicative Price Mechanism

  • Ahmad K Naimzada

    ()

    (DISEI, Università degli studi di Firenze)

  • Giorgio Ricchiuti

    ()

    (DISEI, Università degli studi di Firenze)

In contrast with the canonical models, Naimzada and Ricchiuti (2008, 2009) show that the interaction of groups of agents who have the same trading rule but present different beliefs about the fundamental value could be a source of instability in financial markets. Differently from Naimzada and Ricchiuti (2008, 2009), we assume the market maker employs a so-called multiplicative price mechanism (Tuinstra, 2002 and Zhu et al., 2009). We show that the occurrence of heterogeneity has an ambiguous role: it may either stabilize or destabilize the market.

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Paper provided by Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa in its series Working Papers - Economics with number wp2013_03.rdf.

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Length: 18 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:frz:wpaper:wp2013_03.rdf
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  1. repec:att:wimass:9530 is not listed on IDEAS
  2. Ahmad Naimzada & Giorgio Ricchiuti, 2006. "Heterogeneous Fundamentalists and Imitative Processes," Working Papers 104, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
  3. Zhu, Mei & Chiarella, Carl & He, Xue-Zhong & Wang, Duo, 2009. "Does the market maker stabilize the market?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(15), pages 3164-3180.
  4. Ahmad Naimzada & Giorgio Ricchiuti, 2007. "Dynamic Effects of Increasing Heterogeneity in Financial Markets," Working Papers 111, University of Milano-Bicocca, Department of Economics, revised 2007.
  5. Westerhoff, Frank & Reitz, Stefan, 2005. "Commodity price dynamics and the nonlinear market impact of technical traders: empirical evidence for the US corn market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 349(3), pages 641-648.
  6. Brock, W.A. & Hommes, C.H., 1996. "A Rational Route to Randomness," Working papers 9530r, Wisconsin Madison - Social Systems.
  7. Simone Bertoli & Giampiero Gallo & Giorgio Ricchiuti, 2006. "Exchange Market Pressure: Some Caveats In Empirical Applications," Econometrics Working Papers Archive wp2006_17, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
  8. Westerhoff, Frank H., 2004. "Greed, fear and stock market dynamics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 343(C), pages 635-642.
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